That's a great point I hadn't considered. I acquired the shares in three different grants over about 2 years, with different purchase prices. Would I need to specifically tell my broker which lots to sell, or is that something I can handle when I file my taxes?

You need to specify which lots you want to sell at the time of the sale - you can't decide later when filing taxes. Most online brokerages have this option during the trade execution process, usually called "tax lot selection" or something similar. If your broker's online platform doesn't make this obvious, call their customer service before placing the trade. Once the trade settles, you typically can't change which lots were sold, so it's important to get this right the first time. This kind of specific lot identification can make a substantial difference in your tax situation.

This is good advice. You can offset up to $3k of ordinary income per year with capital losses beyond what you use to offset gains. So if OP doesn't need to offset all $87k in gains this year, they could realize some losses now and carry the rest forward.

Does this apply to FreeTaxUSA too? I switched from TurboTax this year to save money, but I'm worried the cheaper software might not handle these details correctly.

Yes, FreeTaxUSA handles Schedule B the same way. I actually switched to FreeTaxUSA two years ago after using TurboTax for over a decade. Their interface for entering 1099-DIV information is straightforward - you just enter "Vanguard Brokerage Account" as the payer name and the total amount from Box 1a. The software will automatically generate Schedule B if you're over the $1,500 threshold. FreeTaxUSA is actually quite robust for most tax situations, especially for investments. The only real difference I've noticed is that the interface is a bit more streamlined, but all the functionality is there.

That makes sense! My sister has about 8 different funds, so I can see how that would get unwieldy. Sounds like this is standard practice and not something unique to Vanguard. Appreciate everyone's helpful responses - this has been really educational for both of us!

Exactly! And if your sister has multiple brokerage accounts, she would list each brokerage separately on Schedule B. For example, if she has Vanguard and Fidelity, she would have two entries - one for each brokerage with their respective totals from Box 1a of each 1099-DIV. The IRS matches these totals with what each institution reports, not the individual holdings within each account.

How did you handle the transition to CCH Engagement? Did you have to convert a lot of existing documents? We're currently using a hodgepodge of Excel workpapers and I'm worried about the time investment to switch.

The transition did take significant effort, but we did it gradually over about a year. We didn't try to convert historical workpapers - instead, we started using the new system with new clients first, then gradually transitioned existing clients as they came in for the next tax season. We created a core set of templates and standard workpapers before we rolled it out to the team. This upfront investment paid off tremendously as it ensured consistency from the beginning. We did need training from CCH to get everyone up to speed, but that was worth the investment.

We used Canopy for about a year but ultimately switched to SmartVault. Canopy has some nice features for client communication and task management, but we found the document management aspects to be less robust than we needed for complex business returns. The interface is clean and user-friendly, but it was missing some advanced referencing features that we wanted. If your practice is primarily individual returns with some simple business returns, it might be sufficient. For a practice with complex business clients, you might find it limiting.

That's a good point! I did notice the 1099-R amounts were slightly higher than my contribution amounts. So if I understand correctly, I need to: 1. File Form 8606 for 2022 to establish non-deductible basis 2. On my 2023 return, report both 1099-Rs 3. Make sure Form 8606 for 2023 shows my total non-deductible basis 4. Pay tax only on the earnings portion (the difference between contributions and distribution amounts) Does that sound right?

That's exactly right! You've got the process down perfectly. Just to emphasize: make sure your non-deductible basis on Form 8606 for 2023 includes BOTH years' contribution amounts, not just 2023's contribution. The only taxable portion should be those earnings (the difference between your total contributions and the total distribution amounts on the 1099-Rs). TurboTax should calculate this correctly once you have all the non-deductible basis entered properly.

This is such an important detail! I got caught by this exact issue with H&R Block software. It kept trying to treat my recharacterization/conversion as a distribution I was cashing out. I had to go through some special screens to mark it properly as a conversion.

TurboTax is way overpriced. Try FreeTaxUSA - it's like $15 for state filing and federal is free. Has all the same self-employment stuff without the crazy price tag.

Is there any way to offset capital gains? I'm going to sell some stocks this year that will give me a big gain and I'm dreading the tax hit.

Yes, you can offset capital gains with capital losses. If you have investments that have gone down in value, selling them in the same tax year will create capital losses that directly offset your gains. You can also contribute to tax-advantaged accounts like 401(k)s or traditional IRAs to lower your overall taxable income, which can help reduce the impact of the capital gains. For example, if contributing more to your 401(k) drops you into a lower tax bracket, your capital gains rate might also decrease.